What constitutes a 'Competitive Business' for a Fat Shack franchisee, as defined in the agreement?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
The term "Competitive Business" as used in this Agreement shall mean any business operating, or granting franchises or licenses to others to operate a restaurant or other business deriving more than 10 percent of its gross receipts, excluding gross receipts relating to the sale of alcoholic beverages, from the sale of sandwiches, burgers and wings (other than another FAT SHACK Restaurant operated by Franchisee); provided, however, neither Franchisee nor the other Bound Parties shall be prohibited from owning securities in a Competitive Business if such securities are listed on a stock exchange or traded on the over-the-counter market and represent 2 percent or less of that class of securities issued and outstanding. Franchisee agrees that nothing in this Article 21 shall be construed to grant Franchisee any protected territory.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, a 'Competitive Business' is defined as any business that operates or grants franchises or licenses to operate a restaurant or other business. This definition applies if the business derives more than 10 percent of its gross receipts from the sale of sandwiches, burgers, and wings. However, this excludes gross receipts from the sale of alcoholic beverages. This definition does not include another Fat Shack Restaurant operated by the franchisee.
This non-compete clause is in place to protect Fat Shack's market share and brand identity. It prevents franchisees from directly competing with the Fat Shack system during the term of their agreement. The restriction extends not only to the franchisee but also to their officers, directors, shareholders, managers, members, partners, and immediate family members.
There is an exception to this restriction. Franchisees and other bound parties are not prohibited from owning securities in a Competitive Business if such securities are listed on a stock exchange or traded on the over-the-counter market. However, their ownership must represent 2 percent or less of that class of securities issued and outstanding. This allows for minor investments in publicly traded competitor companies without violating the agreement.
Prospective franchisees should carefully consider this definition and its implications. It restricts their ability to engage in similar restaurant businesses during the term of the franchise agreement. They should also be aware of the post-termination covenant not to compete, which further restricts their activities after the franchise agreement ends.